Vitamin M - What percent of your annual income do you spend on your car?

Vitamin M - What percent of your annual income do you spend on your car?

This is a discussion on Vitamin M - What percent of your annual income do you spend on your car? within The Indian Car Scene, part of the BHP India category; Originally Posted by shankar.balan
But the bottom-line will always be more subjective than objective - based entirely on one's set ...

Re: Vitamin M - What percent of your annual income do you spend on your car?

Quote:

Originally Posted by shankar.balan

But the bottom-line will always be more subjective than objective - based entirely on one's set of priorities at the time.

For many people a car is still a luxury purchase for what is ultimately an utility item - this is why compromises are made all the time by buying the lowest de-specced variants available.

The key words you have used strike a chord with me too - why should I not invest in my own well being? After all, to quote that nice movie title - ZNMD! Might as well enjoy the fruits of your labour while you can do so because anyway you cant take it away with you when you finally shuffle off the mortal coil!

Precisely right, Spending an amount for any person whether salaried or self-employed on a car purely depends upon ones' choice. Us Indians(more so up north) always have an inclination of buying a car/brand that is always a step-up on their "budget" because of the perceived image of substance that driving an expensive car or wearing an expensive brand creates on our peers.

Case in point: given the choice between a Diesel Skoda Superb and a Diesel BMW 3, the average individual (not really a self-driving performance freak, rather a first-time medium-upper segment car buyer) whose budget would allow him to spend 23 odd lacs for the Skoda, would much rather push a little bit more for the BMW at 3-4 lacs more even though he'd get lesser space & features etc, but a much better perceived image once the car is parked outside his home.

Re: Vitamin M - What percent of your annual income do you spend on your car?

My Answer

1) Depends on how mad you are about cars and how important your car is to you.
2) Depends on how much time you spend in the car - less than 30 mins to 2-4 hrs - anything more they probably you travel or drive for a living. - Sometimes some people spend so much time in the car they better given themselves a treat on it.
3) Depends on your stage in life (age) and responsibilities. SINK, DINK, SITK - (Single Income no kids, Double Income no kids, (and none planned), Single Income two (or more) kids etc.) Obviously more the responsibilties less one should spend on cars infact one should start saving prior to getting the responsibilities on the shoulders to get a head start.)
4) Do note that though many will buy a car for about 10% of their salary the overall outflow can still be close to 20% of the salary.
5) Your outlook on life. Can't really say that it is correct one way or the other there are people with a different outlook to life and yes some wish to enjoy the finer things in life sooner even if at the cost of a future. The thing is yes it is definately better to live with dignity but then one also can't leave things too late and be in a situation where when the pocket permits certain indulgences the health doesn't. Everyone has a different mindset and different outlook to life and this actually changes with the years. Infact is someone had posted two years back on this thread and then today one may be able to see a difference in the mindset in that short a period as well.

Re: Vitamin M - What percent of your annual income do you spend on your car?

I completely agree with the below point. Indeed, my own mindset keeps changing as I progress along the path of life so I m reasonably sure it happens to everyone else as well!

Quote:

Originally Posted by ACM

Everyone has a different mindset and different outlook to life and this actually changes with the years. Infact is someone had posted two years back on this thread and then today one may be able to see a difference in the mindset in that short a period as well.

Re: Vitamin M - What percent of your annual income do you spend on your car?

From my personal perspective I would say the EMI that one is paying per se should not exceed 10-15% of one's nett monthly take home income after all taxes paid etc.

If it can be kept at a lower figure then that's excellent so as someone else said on the thread, maybe before buying a super expensive car, one needs to seriously think about increasing one's earnings first!

Else, be patient, save money for a reasonable time, in order to put a large down payment towards a vehicle one really likes and then take less of a loan to acquire it.

If possible get a loan with flexible pre-payment terms and decrease the loan tenure, so that one does not fall prey to usurious interest rates which mount up over a longer loan tenure.

The overall running costs and maintenance can take up another 3-4% of nett income at the max.

Depreciation is a reality we all have to live with, but this is part of the price that one pays for the privilege of using a particular vehicle. Put it down to "usage privilege cost". Our parents had their cars but viewed them as a "lifetime" investment to ferry themselves and everyone else around. They also bought cars with hard cash, never on loans or they got company cars given to them along with a good fuel and maintenance allowance. But lets not forget that the company car/ vehicle perquisite was definitely a part of their overall income package, regardless of whichever organization they worked with! In the old days the companies gave you a good lifestyle but not too much cash in hand.

While depreciation per se, does make a big difference, I dont think that the potential depreciation on any vehicle really deters most people from buying what they like/ need, unless of course they have lots of other responsibilities.

To avoid a massive hit on depreciation as per the other thread about keeping your 5 year old car, it is good to hold on to a vehicle for a longer period of time - say 5-7 years, unless of course one gets terribly fatigued or bored or uncomfortable in the said vehicle and/ or if one wants to upgrade to better technology.

Looking at the normal DINK sort of household I would think that people spend around 5-10% of their annual incomes on holidays and other such things. This is also important and if it involves the use of their vehicle, which accounts for another 15% of their annual incomes, then I think it is still ok, provided they are able to save enough otherwise and live within their means. After all, ZNMD so there is nothing considered to be wrong in todays world, with the enjoyment of the fruits of ones labour, unlike in the bad old days of the communist inspired protectionist era where austerity was the name of the game however much one's spirit may have rebelled against it!!!

Of course the mechanics of all this are very relative indeed and people who have kids and other responsibilities may not quite agree with what I have stated above. Everyone in some sense is seeking a better quality of life and lifestyle, so why not in their car persona as well?

This is why I say again that all this is a very subjective thing and there can be no "one size fits all" thought process!

Quote:

Originally Posted by xander

Totally agree with that. Depreciation is the biggest part of car ownership cost. Nobody would be able to afford a car with just 15% of their income on their car.

Re: Vitamin M - What percent of your annual income do you spend on your car?

I have voted for <15% (it's even less than mentioned); no small part going to how well my ride has endeared itself to me and kept me happy with fuss free service over 6 years. I'm almost 52 and I have other pressing priorities than splurge on cars.

Re: Vitamin M - What percent of your annual income do you spend on your car?

I belong DISK (I am Double Income Single Kid) group who can easily venture in 15 to 20L segment. I am little conservative in that sense, as invest more on Property and Gold. I love rides and my annual running is around 14 to 15K.

With the stats of Mumbai - 10KM travel take around 30 Mins. So In a year I spend around 30 days in my Car. (Thanks mohandasnikhi for that different perspective)

I was not sure what all to consider while arriving at the number, still I gave a try. Considered following

1. Running Cost
2. Insurance
3. Interest I am paying monthly.
4. Any pampering I will do during the year as a fixed cost

I kept basic price of the car out of this calculation. Since thats Fiesta Diesel, the overall % does not cross more that 5%.

The Diesel tuning box made the % reach 5% exact this year.

The expenses will further go south considering the appraisal cycle and Bonus just around the corner.

2013 will take the expenses north way as plans are on for a capable SUV while retaining Fiesta as primary ride. Even then I will still remain in <15% as income would go up, EMIs will end.

Re: Vitamin M - What percent of your annual income do you spend on your car?

Best bet: My friend keep buying second hand car, maintain it and enjoy, sells at somewhat 10k-20k higher price and buys a new deal. Guess this is the most practicle and better approach.

About Me: A Zen Estilo (hate it before but love it for what it is)
Always kept thinking of replacing it but seeing my colleagues paying the loan amount differences and considering my running, I dont think I should be replacing it. Moreover with 14kmpl in city with less than average maintainance, my plan to upgrade keep fading.

Moreover, my calculations of buying a new Diesel would attract EMI + running cost which higher compared to present scenario of fill it/shut it as I am paying no EMI.

Re: Vitamin M - What percent of your annual income do you spend on your car?

I think, we should not only look at the emi portion, but also at the back up one might have.
Say, one person has a very good family back up then the emi (risk) that he might take, might be higher.
Also, if one has a decent roti, kapda and makaan, i think he can go for a higher emi.

I think, we should not only look at the emi portion, but also at the back up one might have.
Say, one person has a very good family back up then the emi (risk) that he might take, might be higher.
Also, if one has a decent roti, kapda and makaan, i think he can go for a higher emi.

With all due respect, "back up" implies that you are not buying the car from your income, but from that of your family. Nothing wrong with that, this is India after all. But the principle of looking at what percentage of income is spent on a car still applies - it just needs to be interpreted as what percentage of combined family income is spent on all the cars that the family owns. I also agree that we need to look at both wealth and income, not just income.

“Team-BHP is trusted by millions of motorheads. We deeply understand the responsibility that rests on our shoulders.” excerpt from Our Philosophy page of our website. Team-BHP answered all my questions on automotive topics except this one.

“Cars are the worst depreciating assets on this planet.”

Selecting the right car is important but more important is selecting the right segment according to one’s affordability. Cars speak a lot about the person who drives it but have you ever wondered ‘How much of money, past savings, future income, hardwork and luck has gone into making that purchase?’ I am sure more than 99% of us have bought our cars with our hard earned money (I assume remaining 1% were born with golden spoons in their mouth). My grandfather once bought a new car in a few thousand rupees which could easily cost more than a million today had it been manufactured. Car prices have only increased as time has progressed. To add to it, the ownership and running costs associated with car also keep going up. We are not only taxed heavily while earning but also not spared while buying a new car in terms of Excise Duty, Sales Tax, etc. In a country like Singapore, the government taxes cars so heavily that only a few people are able to afford a car. (Example: Nissan Sunny which costs about 10 Lakhs in India costs around 50 Lakhs in Singapore Source: http://nissan.com.sg/vehicles/almera/index.cfm). At the same time the governments in Singapore have developed their infrastructure so well that no one ever really needs a car for everyday commuting. The question is what should be the right amount one should splurge while purchasing a car in a country like India? What should be the ideal ratio in terms of one’s income? (Considering the above factors)

I work for one of India’s leading financial institution with a market capitalization of more than US$ 10bn who has a very exhaustive set of HR Policies. The Company car policy restricts one to buy a car worth not more than 50% of his annual salary. Of course, depreciation and fringe benefits go into this calculation but there is certainly some method to this madness (phrase meaning: reason for this behaviour). [/FONT][/COLOR]Even the Largest Public Sector Bank of India, SBI recommends a minimum salary of Rs. 6 lakhs per annum to be eligible for a Car Loan. I am sure a lot of calculations must have gone into this while revising this limit.
Let us take an example:

Suppose Mr. X is a salaried individual and earns Rs. 8 Lakhs per annum (pre tax). Let us assume that he doesn’t have any other EMI’s to pay and has a family of 4 to look after. Medical emergencies are covered and so are his retirement pensions.

What percentage of his income should Mr. X allocate to his car purchase decision?

Options:

A Segment Car @ Rs. 3 lakhs

B Segment Car @ Rs. 6 lakhs

C Segment Car @ Rs. 8 lakhs

Any other car >Rs. 8 Lakhs to fulfill his aspirations

The complexity of his purchase decision doubles if he is an auto enthusiast like us or likes to make a statement with his set of wheels. One one side he will have his heart, temptation, urge, dream to own that bigger and expensive car and on the other side he will have to fight his mind, higher EMI's, inflation, ever increasing running costs, savings for the rainy day etc.

Disclaimer: Individual requirements/aspirations will vary. General approach is used.

I would highly appreciate if fellow Bhpians can share their Car-to-Income Ratio (average annual income) so that we all can have a clearer picture.

50% is what I am comfortable with, though I don't think neither me nor anyone would be fully satisfied with that.

On the comparison with a country like Singapore, as you observed, we have all the reasons to invest too high a percentage of our hard earned money on cars- horrible roads, poor public transport, risky traffic and what not. Maybe that is why we probably rank among the highest in this income to car ratio.

Re: Vitamin M - What percent of your annual income do you spend on your car?

I was linked to this thread by another. Nice read.
I would like to spend 25% or so of my Income after taxes on a car however I think that would only be the case if it was a luxury foreign(german!) make exclusive car & that I would be enough security to be able to upgrade it to a similar spec in 5 years.